The battle over cross-border payments has been partly a "bricks vs. clicks" fight as the establishment has wielded its scale to combat digital startups' low-overhead focus on Web and mobile offerings.
But the heat of battle can forge some unlikely bonds, as demonstrated by MasterCard and Western Union’s collaboration with the four-year-old mobile financial service provider bKash, giving the incumbents a foothold in omnichannel payments and making them a bigger threat to other newcomers.
"Startups in this space are likely finding it challenging to establish a network like this from a cost and speed-to-market perspective," said Talie Baker, an analyst at Aite Group. "Western Union and MasterCard are already well established worldwide so it is much easier for them to form partnerships like the one with bKash than it is for a startup."
The new service, which was announced on April 18, builds on bKash's main offering, which has drawn more than 22 million customers since its launch in 2011. Global users can access Western Union's 200-country agent network to send funds to bKash users; while MasterCard provides real-time back end processing via MasterCard Send. Customers use the service by entering their Western Union money transfer control number, amount and bKash PIN.
The service accepts remittances of up to $500 and up to $1,500 spread out over five transactions per day. Once the transfer is complete, the funds are instantly available and can be cashed out at bKash agent locations or used to fund person-to-person mobile transfers, top up airtime, pay bills or shop.
There are a couple of potential advantages to this setup. The model resembles the early "mobile money" services that introduced financial services to emerging markets globally, and is a familiar form factor for local residents.
"In developing economies we are seeing the trend of using the mobile phone to access financial services," Baker said. "Mobile wallets and mobile 'bank accounts' are often the only type of financial service easily accessible to underbanked populations in the developing world."
And while Western Union still owes most of its business to its agent network, this move demonstrates a commitment to digital and mobile payments, Baker said.
International payments incumbents such as Western Union had initially taken a contrarian posture to tech startups. But Western Union, while maintaining its opposition to virtual currency such as bitcoin, is now aggressively pursuing mobile-enabled digital transfer technology to make the most of its scale.
"Right now, there is there is no clear leader in the digital remittance space," Baker said. "If Western Union continues to innovate with products like this, they could end up maintaining their place as No. 1 as the world becomes more fully digital."
Compliance is also easier through such alliances. bKash is already approved by Bangladesh Bank, the central bank of Bangladesh, which oversees foreign remittance regulations. bKash is a joint venture of BRAC Bank, a Bangladesh-based bank; Money in Motion, the IFC, the provide sector investment arm of the World Bank Group and the Bill & Melinda Gates Foundation.
"What has helped enable this new mobile-based remittance structure was the fact that bKash already had a relationship with BRAC Bank," said Tim Sloane, vice president of payments innovation for Mercator Advisory Group, who added the compliance needs for remittance differ from cross border person to person payments. "As a result, BRAC bank is the primary enabler that can connect MasterCard to bKash and execute against all country-specific and international remittance regulations."
MasterCard did not provide an executive for an interview by deadline. In an emailed statement attributed to Barb King, Group Head of MasterCard Payment Systems Integrity Group, the card network said it considers the Bangladesh model to be transferable to other markets and has a robust pipeline of markets. The card network also considers the service to be a step towards making the financial system accessible to 500 million more people by 2020.
Western Union was not available for comment by deadline.